Lumber sales started off the new year flat-footed, with concerns about rising mortgage rates, seasonally disruptive weather and, with the inauguration of President Trump, threats of tariffs to be assessed on Canadian lumber. Mortgage rates rose to the highest levels they had been since last July (per Freddie Mac)) which, again, punted home affordability out of the reach of many budget-strapped Americans. Freezing temperatures and snowfall across the nation were in step with a traditional January, interrupting or impeding the progress of construction and the logistics for numerous building materials. But with those two issues aside, the largest concern was held up against the inauguration of our newly reappointed President Trump and his desire to impose tariffs on numerous countries, but particularly Canada. His reelection had initially created excitement in the marketplace, but his initiative to immediately put into effect “very serious tariffs” on foreign countries (with Canada targeted for 25%), sucked a lot of air out of the room. This is obviously no small figure, especially when you take into consideration the cost of lumber which, incidentally, is still at historically advantageous price levels considering the inflationary increases of just about everything else. However, this comes as short comfort for anyone looking to buy a home. The angst leading up to his inauguration was palpable as no one on either side of the border really had a clear enough read on the situation to confidently react to it, but it boiled down to either buying ahead of the tariff or doing nothing. In the end, reactions and strategies varied widely, with many Canadian suppliers simply tacking on the tariff and seeing if there were any takers, some quoting and taking orders for material with the caveat that they’d change their prices if a tariff went in to place and others maintaining the status quo. Tepid sales persuaded most buyers to sit on the sidelines, only stepping in to cover their immediate needs and as Inauguration Day January 20th, 2025, came and went with a newly inaugurated President Trump at the helm, no tariffs were implemented but the threat remains. In the meantime, lumber prices remained flat and, with the spring season coming into view, many dealers are setting their sights on preparing for upcoming business which, by all accounts, is anticipated to be a rip-roaring sales period. For February, we continue to follow the tariffs threats but, as of print, prices are firm and are expected to moderately climb.
To protect domestic industries, as a source of revenue and for political leverage, governments impose tariffs and duties on imported goods to make them more expensive to purchase and therefore less attractive to their homeland consumers. Both are taxes, but the chief differences are that tariffs are a direct tax (paid directly to the government by the taxpayer, such as with an annual IRS filing) levied on a specific class of product (such as lumber) while duties are an indirect tax (one that can be passed on, such as incorporating taxes on a retail sale) imposed on the consumer for goods and/or financial exchanges. According to TaxFoundation.org, “Tariffs are trade barriers that raise prices, reduce available quantities of goods and services for U.S. businesses and consumers, and create an economic burden on foreign exporters.” Tariffs persuade businesses and consumers to buy domestic products by equalizing or making domestic products more price attractive. When they go into effect, imported products increase in price and domestic products follow suit with a net effect of increasing costs. This has been the case with lumber each time a tariff or duty has been enacted. Speaking of duties, there has been a long-standing dispute between the U.S. and Canada regarding lumber trade for (insert drum roll here): 43 years! The “Softwood Lumber Act” has been a bone of contention between the U.S. and Canada, with the U.S. Department of Commerce charging and changing a Countervailing Duty (CVD) and an Anti-Dumping Duty (AD) for over four decades. The last adjustment occurred in August of 2024, from 8.05% to 14.54%. Every so often they undergo new and further reviews, adjustments get announced and, when they go up, the market goes into a fervor about it but then the day comes and goes, with little fanfare. Why? Because by the time that increases officially meet their due date, they have already been incorporated into the price of the goods, as a reaction to and in defense of the Canadians having to absorb the differences themselves. Do the increase in prices drive Americans to seek prices elsewhere? Sure, but it often means having to change species (SPF or Doug Fir to Southern Yellow Pine, for instance) or encounter that the domestic product costs as much as or more than the Canadian product. Prices generally increase to the scope of the adjusted duty and the net result is a new, higher price “water line”. Businesses will enjoy a higher margin dollar, although volume is likely to be affected as (again) it is the American consumer who will pay the price and affordability is a key concern: the more that prices escalate, the less spending occurs. The long-term goal is to stimulate domestic sales by manipulating pricing, by way of increasing the foreign cost so that the domestic one is more advantageous or at least on a level playing field. Driving stateside sales stimulates our own economy, creating jobs and opportunities for our citizens so, even if the price is higher than the import option, everyone wins because we’re all making more money, right? Few Americans would argue that they don’t want our own economy to flourish and for us to enjoy the profits of our own consumption but, with the state of the housing market since the COVID years, most would agree that increasing the cost of building a home is not exactly what we’re looking to do right now. Nonetheless, the often-confusing science and motive behind tariffs, duties and political leverage will change depending upon the players and the situation but, in the end, we all want the U.S. economy to thrive so, although we are not welcoming price increases, we do hope that, if or when a tariff is imposed on Canadian lumber, that the strategy is a successful one not only for our industry, but for all American citizens.